How Car Leasing Works

Car leasing allows you to drive a brand new vehicle for a fixed monthly payment over an agreed contract term. Instead of purchasing the car outright, you pay to use it for a set period, usually between 24 and 48 months.

At the start of the agreement you make an initial rental payment, followed by fixed monthly payments. Once the lease ends, the vehicle is returned to the finance company as long as it is within the agreed mileage and fair wear and tear guidelines.

You can browse the latest car leasing deals or compare current special lease offers to see what vehicles are available.

No. With standard car leasing agreements such as Personal Contract Hire (PCH) or Business Contract Hire (BCH), the vehicle remains the property of the finance company throughout the contract.

At the end of the lease, the vehicle is simply returned. If you prefer an option to buy the car at the end, you may want to consider PCP finance instead.

At the end of a car lease, the vehicle is returned to the finance company. The car will be inspected to ensure it is within the agreed mileage allowance and meets fair wear and tear guidelines.

If the vehicle is in good condition and within the mileage limit, the return process is usually straightforward. Many drivers then choose a new lease vehicle from the latest car leasing deals.

Usually yes on the monthly payment, but often no on the total cost over many years. Leasing payments only cover the vehicle's depreciation over the lease term rather than the full purchase price, which is why the monthly figure tends to be lower than financing a purchase.

Over a longer horizon the picture reverses. If you buy a car and keep it well beyond the point where the finance is repaid, you eventually stop making payments altogether, which a lease never does. Leasing tends to win for drivers who change car every few years, and buying tends to win for drivers who keep a car for a decade.

There is no automatic right to end a contract hire agreement early. The voluntary termination right under the Consumer Credit Act, which lets a customer hand a vehicle back once a set proportion has been paid, applies to hire purchase and PCP rather than contract hire, because contract hire is a rental agreement rather than regulated credit in the same way.

Early termination is at the funder's discretion. Where it is offered, the funder will quote a settlement figure, typically a large proportion of the remaining rentals, and some funders do not offer it at all. Choose a contract length and mileage allowance that suits your needs at the outset, and speak to your funder directly if you need to understand where you stand on an existing agreement.

A car lease includes use of the vehicle for the agreed term and the manufacturer warranty that comes with a new car. The monthly payment covers the vehicle's depreciation over the contract term.

Optional maintenance packages may also be available, covering servicing, tyres and MOTs depending on the agreement. Insurance is not normally included, so you will usually need to arrange your own fully comprehensive cover before delivery.

Yes. Electric vehicles are widely available through leasing and are becoming increasingly popular thanks to lower running costs and reduced emissions.

You can compare the latest electric car leasing deals to see the newest EV models available.

Car leasing can work well for both personal and business customers. Personal leasing is ideal for drivers who want predictable monthly costs and the ability to change cars regularly.

Businesses often benefit from Business Contract Hire agreements, which may offer VAT advantages and fixed monthly fleet costs. Tax rules change each tax year, so confirm the position with your accountant.

There is no deposit in the way there is when you buy, but you do normally pay an initial rental at the start of the agreement. It is not a deposit and it is not refundable, because it is the first payment of the contract rather than money held against the car.

The initial rental is quoted as a multiple of the monthly rental, and the two move against each other: put more in at the start and the monthly figure comes down, put in less and it goes up. The total you pay across the agreement changes far less than people expect. If the upfront figure is the issue, our low deposit lease offers are worth comparing.

No, insurance is not included in a standard lease and you arrange your own. You will need fully comprehensive cover in place before the car is delivered, because the finance company owns the vehicle and requires it to be protected on that basis.

Tell your insurer the car is leased and that the finance company is the registered keeper, as they will ask. Some providers sell packages that bundle insurance into the monthly payment, but these are a separate product rather than how leasing normally works.

Yes. On a contract hire agreement, road tax is included for the full term of the contract and the cost sits inside your monthly rental, so you never tax the car yourself.

This works because the finance company is the registered keeper and taxes the vehicle in its own name. It is one of the genuine administrative advantages of leasing, along with the car being new enough that it needs no MOT for the first three years.

Yes. Every lease application is credit assessed, and the decision is made by the finance company rather than by the broker arranging it. Leasing is a credit agreement, so this applies to personal and business leases alike.

There is no single score that guarantees approval. Funders look at your overall financial position, including your credit history, how long you have been at your address and your income against the commitment, and different funders take different views of the same application. Being on the electoral roll and having a settled address history both help.

You do, unless you add a maintenance package to the agreement. Servicing, tyres, wiper blades and anything else that wears out through use are the driver's responsibility on a standard lease.

Mechanical faults are a different matter and are usually covered by the manufacturer warranty, which on a new car normally lasts at least as long as a typical lease. Keeping the car serviced on schedule and keeping the record matters, because a gap in the service history can count against you when the car goes back.

Yes, but you need permission from the finance company first, in the form of a VE103 vehicle on hire certificate. Because the funder is the registered keeper, this is the legal proof that you have their authority to take the car out of the country.

Request it from your funder well before you travel and take the original document with you, as copies and photographs are not accepted. Driving a leased car abroad without one risks the vehicle being impounded. Check any mileage and territory conditions on the certificate at the same time.

You report it to your insurer and to the finance company, and your monthly rentals carry on as normal throughout. The car is repaired to the manufacturer's standard, and the funder will usually want a say in where the work is done, since the vehicle is theirs.

If the car is written off, your insurer pays the finance company the vehicle's market value at that point and the agreement ends there. That payout can be less than the amount needed to settle the agreement, and the difference falls to you, which is the gap that GAP insurance exists to cover. It is worth deciding on GAP cover at the start rather than after an accident.

You pay an excess mileage charge for every mile over the allowance, at a rate written into your agreement before you sign. Because the rate is fixed and known, you can work out where you stand at any point in the term rather than waiting to find out at the end.

Choose the allowance honestly at the outset. Understating your mileage to bring the monthly figure down is a false economy, because you pay for those miles either way and the excess rate is usually the more expensive route. If you can see part way through that you are going to go over, speak to your funder, as some will look at adjusting the agreed mileage.